ETF Focus

Be Wary of Equal-Weight Funds

A decade-long run of outperformance raises questions about them…and the mid-cap stocks they favor.

Some investors think small stocks are stellar; for others, big is beautiful. For a decade, however, the middle has been the place to be. Over that span, the Standard & Poor's 400 index of mid-sized stocks has beaten both the large-cap S&P 500 and the small-company Russell 2000, and with middling volatility. Keep the trend in mind if you're examining equal-weight exchange-traded funds, which use one of the oldest and most successful alternative-indexing strategies. Equal weighting's success is closely related to the rise...